What is ULIP?

What is ULIP?

ULIP is an innovative, hybrid insurance-investment product that offers the triple benefits of life insurance coverage, attractive investment opportunity and tax saving benefits to the policyholder.

According to a report by IMF (International Monetary Fund), India is likely to grow at 7.8% of its GDP in 2019 as against 6.4% GDP growth (projected) of China.

Given this fact, it is no rocket science to understand why it is the best time for investors looking to invest with an objective to grow their hard-earned money manifolds.

But here’s the deal:

On 3rd and 4th of October, stock market in India crashed registering a total loss of Rs. 5 lakh crore. Mutual fund investors who had invested in small-cap and mid-cap stocks were at big loss due to this stock market crash.

All in all, this stock market crash came as a huge blow for investors who stayed invested in equity mutual fund schemes, even after the introduction of 10% LTCG (Long Term Capital Gains) tax on the returns.

Here’s BIG QUESTION:

“What should investors do to invest in the equity, stocks of their choice without having to worry about the ever-s0-worrisome stock market volatility?”

Meaning of ULIP

The full form of ULIP is Unit Linked Insurance Plan. As discussed above, ULIP provides investors with the triple benefits of life insurance coverage, investment opportunities in the equity/stock market and benefits of tax saving.

In ULIPs, policyholders can choose to make premium payments monthly or yearly. One part of the premium made towards ULIP is attributed towards the life insurance component of the plan; whereas the other portion of the premium payment goes towards the investment component. Under ULIPs, investment is done quite similar to that of mutual funds.

ULIPs come with a lock-in period of 5 years and typically the investment term for ULIP is 5,10 or 15 years. During the tenure of the ULIP, policyholders keep investing in equity and debt funds, and keep accumulating units.

Experts believe that the new-age or 4th-generation ULIP is perhaps the best investment product available in the market for investors today. Earlier, there were many charges levied on ULIP as a result only a small portion of the premium was allocated towards the investment component of the plan. However, after the intervention of IRDAI, several regulations were introduced and charges were capped to ensure that a fair fraction of the premium payment goes towards the investment helping investors get higher returns on investment. In addition, policyholders are allowed to take a pick of the funds where they wish to invest their money. Also, policyholders can choose to switch between quity and debt investment funds depending upon the market situation.

Top 3 Reasons to Buy ULIPs Now

Investment Benefits

Typically, ULIP investments are flexible and transparent. This means that policyholders can choose their fund option, switch between funds during the term of the policy and make extra premium payments to score higher returns on investments.

Almost all ULIPs come with an array of investment funds to choose from. This makes it easy for policyholders to invest their money as per their future financial goals and risk tolerance. In addition, ULIPs also allow investors to switch between funds of their choice to maximize their returns. Most ULIP plans offer as many as 12 free fund switches in a year.

ULIP investors may also make extra payment towards the premium for higher returns on the investment. This can be done by top-up premium payments.

Insurance Benefits

Almost all ULIPs allow policyholders to choose their Sum Assured (Life Cover) at the time of the inception of the policy. And that’s not all: policyholders are also allowed to increase the Sum Assured during the term of the policy to ensure comprehensive financial protection at every stage of their life.

Furthermore, ULIPs also offer options of riders to help policyholders ensure iron-clad, financially secure future for their loved ones. These riders come in the form of total and permanent disability riders, accidental death benefit riders, etc.

Since ULIPs are essentially insurance product, they come with a free-look period of 15 days. During the free-look period, policyholders may choose to return the policy if they don’t agree with the charges, terms or conditions of the policy.

Tax Benefits

If expert advice is anything to go by, ULIPs are perhaps better than mutual funds and most traditional insurance plans. Why? This is because they not only offer investment opportunities and insurance protection, but also offer lucrative tax benefits during all stages.

Policyholders get to enjoy tax exemption on the premium payments made towards the policy under Section 80C and 80D of the Indian Income Tax Act. In addition, the appreciation on your investment is not taxable. Also, fund switches between equity and debt investment funds are completely tax-free.

Partial withdrawals, under ULIPs, are also tax free. Lastly, the maturity proceeds under ULIPs are also tax exempt under Section 10 (10D). On the other hand, maturity proceeds under mutual fund schemes are subject to LTCG taxes of 10%.

Wrapping it Up!

So now you know what is ULIP and the many benefits associated with it. Now it’s time to put the learning into practice and see your money grow in no time. Rest assured, amazing features including free fund switches, attractive fund options, comprehensive life cover, etc. make it the best investment product for every type of investor, from novice to experienced investors and from risk lovers to conservative investors.